Sunday, February 08, 2004

Decline in Dollar; What Me Worry?

G-7 Statement Signals Worry About Dollar:
The dollar has lost a quarter of its value against the euro in the past year, and a third of its value in the past two years. The weaker dollar has provided a big lift to American exporters, because a cheaper dollar makes American products cheaper in foreign markets. American exports shot up 19.1 percent in the final quarter of last year, and they are expected to keep rising this year.

But the strong euro is causing problems for European exporters by making their products more expensive in the United States. International anxieties about the United States' plunging currency and massive borrowing needs were higher at this Group of 7 meeting than in years.

European finance ministers and central bankers, having watched the dollar's slide against the euro in the past year, sought to reach some sort of agreement that would stop the dollar from falling further. Exports are virtually the only source of economic growth in countries like France and Germany.

Mr. Snow repeatedly told the ministers that the administration 'has a plan' to reduce by half the United States' budget deficit over the next five years. Many budget analysts say deficit reduction will be extremely difficult because of the administration's support for large tax cuts as well as the costs of maintaining troops in Iraq and Afghanistan.

The budget deficit increases the United States' need for foreign borrowing, already at extraordinarily high levels. The American current account deficit, the broadest measure of trade and financial transactions with the rest of the world, is about $500 billion a year."

European leaders put part of the blame for the recent currency shifts on the Bush administration's willingness to let the budget deficit soar and the dollar fall. 'We are all interdependent,' said Francis Mer, France's finance minister, of the American budget deficit, which the White House predicts will reach $521 billion this year.[nitpicker emphasis]

Well, at least someone is paying attention and they don't buy the Administration's line about deficit reduction, either.


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